Thanks for pointing this out! I'm not sure how my policy works tax-wise. It was through my employer but I think I did pay some portion of the premiums each month before I went on disability. How would I figure out if I paid with pre-tax or after-tax dollars?

You can determine this by looking at your last paystub before going on disability. Look for the disability insurance premium deduction and check if it's listed under pre-tax or post-tax deductions. If you don't have your paystubs, contact your HR department or benefits administrator - they can tell you exactly how your premiums were structured. If you paid even a portion of the premiums with after-tax dollars, then a corresponding percentage of your benefits would be non-taxable. For example, if you paid 40% of the premium with after-tax money, then 40% of your benefits would be tax-free.

They sent me a 1099-R that shows the full amount in Box 1, and it looks like it has a code in Box 7. Not sure what that means though.

The code in Box 7 of your 1099-R is super important! It tells you how the distribution is being characterized. For disability payments: Code 3 typically means disability payments before minimum retirement age - these are usually taxed as regular income. Code 7 is for normal distributions, sometimes used for disability after reaching minimum retirement age. If there's a value in Box 5 (Employee Contributions/Designated Roth Contributions), that's the portion that ISN'T taxable because you already paid tax on it!

I hadn't heard of a PPIA before - that sounds like it might be a good option for my situation. Does the 10-year collection statute still apply even with the large amount I owe? And what happens during those financial reviews every 2 years?

Yes, the 10-year collection statute of limitations applies regardless of the amount owed, though be careful because certain actions can extend that period. The clock starts from the date the tax was assessed, not from when you enter into the agreement. During the biennial financial reviews, the IRS will request updated financial information to determine if your financial situation has improved. If you're making substantially more money or have acquired significant assets, they may increase your monthly payment amount. Conversely, if your situation has worsened, you might qualify for a lower payment. This is why documentation of your expenses and financial situation is crucial throughout the process.

This is actually a really important point. Tax debt that's more than 3 years old CAN be dischargeable in bankruptcy under certain conditions. I consulted with a bankruptcy attorney for my own tax issues and while I ended up not filing, the consultation alone gave me leverage in negotiating with the IRS because I understood my options better.

That's a really good point about unemployment. Do you know if I need to do anything special for the state tax situation? Like should I be filling out any specific forms now, or is that just something I handle when filing next year?

For the state tax situation, you don't need to do anything special right now other than making sure your employer knows you're a Wisconsin resident. When they set up your payroll, they should withhold Colorado state taxes since that's where you're working. When tax filing time comes, you'll file a resident return for Wisconsin (reporting all your income from all states) and a non-resident return for Colorado (reporting only the income earned in Colorado). Wisconsin will give you a credit for taxes paid to Colorado to avoid double taxation. Each state has different forms for this, but any decent tax software will walk you through it.

Not OP but I've dealt with this. You can maintain residency in one state while working temporarily in another. Maybe OP still has their permanent address, driver's license, voter registration, etc. in Wisconsin but is working in Colorado for a limited time. Residency definitions vary by state, but usually involve where you intend to make your permanent home.

Thank you! I've already updated both my W4 forms for this year, but I'll definitely use that calculator to double-check everything. Is it normal to owe this much though? I'm still shocked at how big the difference was.

Yes, unfortunately the amount you owe is pretty typical for this situation. When you add a second job with similar income, you're essentially doubling your income but your withholding isn't doubling the tax paid because each employer is calculating withholding based on their portion only. For example, if you make $80K at one job, you might be withheld at an effective rate of about 12-15%. But when your total income is $160K, portions of that income are taxed at 22% or 24% brackets. That difference between what was withheld (at lower rates) and what you actually owe (at higher rates) is where that $5K+ bill comes from.

This is good advice. Also, make sure you're taking the standard deduction at a minimum ($12,950 for single filers for 2022). And if you made any charitable contributions or had work-related expenses that weren't reimbursed, those might help too.

Thanks for bringing this up! I do have some student loan interest from when payments were still required, and I contributed to my 401k at both jobs. I'll definitely look into those deductions. Do you think it could significantly reduce what I owe?

Wow, $475 is so much more reasonable! Do you have any tips for finding someone good at that price point? Did you just Google local accountants or was it word of mouth? I'm definitely going to shop around this year.

I found my accountant through a local small business networking group in my area. Word of mouth referrals are gold for finding good accountants at reasonable rates. Check if there's a Chamber of Commerce small business group or even Facebook groups for local business owners in your area - then ask for recommendations. When interviewing potential accountants, ask specifically about their experience with pet service businesses or similar industries. Mine already had several dog walkers and pet sitters as clients, so she knew exactly which deductions to look for. Also ask about their communication style and availability throughout the year, not just at tax time.

I tried that route first and missed a bunch of deductions. Ended up hiring a pro who saved me way more than his fee. Software is fine if your business is super simple but it doesn't replace experience.